Skandia UK turns its back on the ABI

By LII editorial May 1, 2008

In a surprise move, Skandia UK announced on 3 November that it is ending its membership of the Association of British Insurers (ABI), an industry body with some 400 members that between them provide 94 percent of domestic insurance services in the UK.

A unit of UK-domiciled life insurer Old Mutual, Skandia UK had total assets under management of £39.5 billion ($62 billion) at the end of June 2008.

Rationale for Skandia UK’s decision is based on its view that the position adopted by the ABI and many of its members on the issue of financial advice is wrong and will undermine the role of independent financial advisers (IFA).

“For some time now we have viewed ourselves as different from more traditional life insurers and have felt a lack of alignment with the broader membership of the ABI,” said Skandia UK’s CEO Nick Poyntz-Wright . “We offer our investment solutions only through financial advisers because we believe passionately in the importance of quality advice to guide and support customers’ financial decisions. Unfortunately fewer and fewer of our peers among the ABI membership share our focus on the advice sector.”

A key feature of the ABI’s approach is a proposal it put forward in response to the Retail Distribution Review (RDR) launched by the Financial Services Authority (FSA) in June 2006 that a new distribution channel termed assisted purchase be introduced. This would be in addition to the existing advised and non-advised sales channels.

Skandia UK believes the assisted purchase channel would cause consumer confusion and undermine the value of IFAs. The insurer noted that the ABI’s research during an assisted purchase trial found that 66 percent of consumers incorrectly thought they had received advice.

Underscoring its belief in the role of IFAs, Skandia UK will align itself with the Association of Independent Financial Advisers (AIFA) and provide the body with financial support.

Commenting AIFA’s director general Chris Cummings said: “We have worked closely with Skandia on previous projects and member events. In a post-RDR world, there will be many pressures on IFAs, such as the need to review their remuneration model and perhaps gain further qualifications. This additional support will enable AIFA to roll-out a much more comprehensive programme of member support than we would have otherwise been able to conduct.”

Responding to Skandia UK’s announcement the ABI’s director general Stephen Haddrill said: “We do not recognise Skandia’s description of the ABI’s member companies. ABI membership is made up of a wide range of excellent financial services, asset management, advice and protection companies.

“Our members have consistently been in favour of increased professionalism and have advocated reform to eliminate commission bias and increase consumer trust in financial advice.”

The FSA will make public its final proposals on the RDR on 28 November this year. The FSA will also release initial responses from industry and consumer groups.